It's important to know that ISAs can be opened at any time of the year but
there are a number of rules that must be adhered to

Advertisement feature

Every spring there is a flurry of activity as savers and investors rush to meet the ISA (Individual Savings Account) deadline before the end of the tax year on April 5.

However, ISAs can be opened at any time of the year. If you have not opened one for the 2013/14 tax year, it makes sense to do so sooner rather than later.

Not only will you have more time to use up your annual allowance, you will keep more of your cash for longer.

Remember, you do not have to wait until you can use up your full annual allowance of £11,520 – you can open an ISA with as little as £1.

So what are the rules?

• There are two types of ISA – cash ISAs (basically a tax-free savings account), and stocks and shares ISAs (which are tax-efficient and can be invested in shares or funds such as unit trusts or investment trusts).

• Its important to know the value of investments, and the income from them, can fall as well as rise, and you may not get back the full amount you invest. The tax advantages of ISAs may change in the future and also depend on your individual circumstances.

• In each tax year you can only have one cash ISA, and one stocks and shares ISA (although you can transfer these from one provider to another).

• An ISA is a tax efficient way to save and stands for Individual Savings Account. An ISA lets you pay little or no tax on the interest your savings and investments make.

• For the current tax year starting on April 5 the limit on the amount that can be subscribed into a stocks and shares ISA is £11,520, of which £5,760 can be invested into a cash ISA.

What to look for in a cash ISA:

• The rate: obviously the more competitive the rate, the more interest you will earn. However, rates are not always easy to compare.

• Bonuses: these inflate the rate but only for a limited time. So, for example, your rate may be 1 per cent higher, but only for one year. When comparing rates make sure you bear this in mind and consider transferring to another provider when the bonus rate expires.

• Fixed rates: these offer certainty – but once again for a set period only. So once again, shop around when the rate ends. Also you could forfeit interest if you need access to your cash, so only lock away what you do not need.

Accessing your cash ISA:

• Many savers still pay tax on their balances instead of sticking their spare cash in an ISA, because of the hassle factor or feelings that it is not worth it because they may need their cash. However, you can set up an ISA easily and access your money at any time.

• Online accounts: These allow you to access and manage your cash ISA through banks’ online banking service. You should be easily able to simply transfer surplus balances into your cash ISA, but make sure you keep it within your ISA allowance.

• Easy access: If you feel you may need your savings, opt for an easy access account. Note that when you withdraw cash from an ISA you then lose the tax break on this money. So if you have £5,760 in an ISA and withdraw £2,000, you cannot put in another £2,000 in this tax year - you have to wait until the new ISA year starts on April 6. However, if you have not used up your cash ISA limit, this may not apply. So if you have £3,000 in a cash ISA and withdrawn £1,000 you will still be able to invest £2,760 and not breach the £5,760 limit.

• What rate of interest are you earning on your cash ISA? It is vital to know as the rate that tempted you in the first place might have been cut since you first invested.

• You do not have to keep your cash ISA with your existing provider – you can shop around for a better rate.

• Cash ISAs can be transferred from one provider to another but do not cash your ISA in and then try to reinvest the money – you will lose the tax break. Instead, ask the new provider to arrange a transfer.

• In addition, while funds invested in a stocks and shares ISA can only be transferred to another stocks and shares ISA, funds invested in a cash ISA can be transferred either to a stocks and shares ISA or another cash ISA.

Did you know?

• 14.6 million ISA accounts were subscribed to in 2012/13

• 80 per cent of these were into cash ISAs, slightly more than in previous years despite low interest rates